What's a Social Media Debate Between Friends?

My colleague Douglas Reynolds recently noted that this whole Web 2.0 thing "sounds like the portal strategy of years ago," as well as "the familiar frenzy of money eager to be relieved of its value," and "a lot of questioning of the business model for social media sites."

To which I would reply: "Yes and no."

While there is a sort of frenzy out there, the money being thrown around is nowhere near the astronomical an irrational figures of seven years ago. I would argue that the market has learned from its mistake, and if anything, venture capitalists are even more conservative with their investments as a result.

The difference between Irrationality 1.0 and Irrational 2.0:

• The Intenet is much more wide-spread and universal in use and therefore the new media have a broader reach
• Technology is such that many individuals and companieare developing applications, solutions, and business models
• Operating margins for a single-person shop doing a blog or some unique application code are almost neglible
• Any small investment in such entities will not sink the market overall

That being said, I would agree with Doug with the fact that there is a frenzy going on. Sites like Micro Persuasion, TechCrunch, and eHub are dedicated to enlightening readers on the coolest 2.0 applications on a daily basis.

It's what we do with these offerings that makes all the difference. A cool tool is useless until someone figures out a way to monetize it. It's one thing to show such a site to friends and family - but have you figured out how to present it to a client in a profitable way?

Footnote (added 10/2/06, 10:35 a.m.): BtoB Magazine has a post called When will the social media bubble burst? Answer: never.

The social media bubble isn't going to burst any more than the e-mail or instant messaging bubbles burst. In fact, there is no bubble. Bubbles need an air supply in the form of venture capital and inflated expectations from investors. They also need a payoff. Almost none of that exists in this market.